All changes are part of the DAX family’s biggest rules reform since inception and were designed by Qontigo’s global index provider STOXX Ltd. following a month-long market consultation last year. They are aimed at bolstering the quality of member companies, bringing selection criteria in line with international standards and expanding the number of constituents.
Upcoming changes applicable as of Mar. 1, 2021 include1:
- Inauguration of the semi-annual review schedule for the blue-chip DAX® Index (March and September), replacing the old once-a-year review schedule (September).
- All companies in the DAX Selection Indices will have the obligation to timely publish quarterly statements, half-yearly financial reports and audited annual financial reports. If a company fails to submit these within the specified timeframe, it will be subjected to a warning period. If the company still fails to publish the reports during the warning period, it is deleted from the index within two trading days. 2, 3
- All members of a DAX Selection Index will need to comply with the recommendations of the German Corporate Governance Code with respect to the formation of an audit committee in the supervisory board. Existing index members will be given a grandfathering right to adapt to the new requirement through August 2022.
Raising the quality bar
Since last December, only candidate companies that have been profitable for the two most recent years are eligible for admission into the DAX.4
The selection criterion of trading turnover will as of September this year be replaced by a minimum liquidity requirement, with market capitalization remaining the key metric as is customary internationally.
The flagship DAX will be enlarged to 40 constituents in September, from 30 currently, to foster diversification. The MDAX® will be reduced to 50 from 60 components, while the SDAX® will remain unchanged at 70 members.
For a detailed explanation of all changes, visit the results of the market consultation here.
The undisputed benchmark for Germany
The DAX changes reflect the recommendations of stakeholders and keep pace with evolving investor needs. The new rules strengthen the methodology behind the German Selection Indices, and further underpin the attributes that have made the DAX the undisputed benchmark for German stocks and a reliable barometer for Europe’s largest economy.
1 The March review takes place on Mar. 3, 2021 after markets close. Announcements are affective as of Mar. 22, 2021.
2 Publication of quarterly reports and half-yearly shall be completed within 45 days from the end of the reporting period, while that of annual reports shall be done within 90 days from the end of the reporting period. The warning or grace periods extend those publication timeframes to, respectively, 75 days, three months and four months.
3 As part of the rules revamp, index management gained more control over the financial-reporting compliance of member companies. A requirement for all DAX constituents to be listed on the Frankfurt Stock Exchange’s Prime Standard, a premium segment with higher transparency duties than the General Standard segment, is being removed in favor of a listing on the Regulated Market of the Exchange. However, the key requirement of the Prime Standard to publish quarterly statements and audited annual financial reports is retained as part of the indices’ own methodology.
4 This requirement is for companies that are not yet DAX constituents. Existing DAX members that have negative profitability can stay in the index. The requirement applies for the main DAX and is not extended to the MDAX, SDAX or TecDAX. The rule refers to a positive EBITDA in the candidates’ two most recent annual financial statements.